How Your Retirement Benefit Is Figured

As you make plans for your future, one of the questions you should ask is, "How much will I get from Social Security?" There are several ways you can find out. Social Security sends a yearly statement to everyone age 25 or older who has worked under Social Security and does not yet receive benefits. You should receive a Social Security Statement every year about three months before your birthday.

You also can request a statement by calling Social Security and asking for a form SSA-7004, Request for Social Security Statement , or by downloading the form at www.socialsecurity.gov/online/ssa-7004.html on the Internet. Or, you can calculate your benefit yourself using the programs available at www.socialsecurity.gov/retire2 on the Internet.

Even with an estimate many people still wonder exactly how their benefit is figured. Social Security benefits are based on earnings averaged over most of a worker's lifetime. Your actual earnings are first adjusted or "indexed" to account for changes in average wages since the year the earnings were received. Then Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most. It applies a formula to these earnings and arrive at your basic benefit, or "primary insurance amount" (PIA). This is the amount you would receive at your full retirement age, 65 or older, depending on your date of birth. This age will increase gradually each year until it reaches 67 for people born in 1960 or later.

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The monthly benefit you receive from Social Security may not be the basic benefit. Your actual benefit may be higher or lower than that amount if any of the following is true.

• You receive benefits before your full retirement age.

  You can begin to receive Social Security benefits as early as age 62, but at a reduced rate. Your basic benefit will be reduced by a certain percent for each month that you receive benefits before your full retirement age. The closer you are to your full retirement age when you begin receiving benefits, the greater your benefit amount.

• You receive cost-of-living increases.

  You are eligible for cost-of-living benefit increases starting with the year you become 62. This is true even if you don't get benefits until 65 or even 70. Cost-of-living increases are added to your benefit beginning with the year you reach 62 up to the year you start getting benefits.

• You delay your retirement past your full retirement age.

  You may continue working past your full retirement age and not begin to receive Social Security benefits. If you choose to do this, your benefit amount will be increased by a certain percent for each month you are past your full retirement age, but do not receive benefits. These increases are automatically added to your benefit until you reach age 70.

• You are a government worker with a pension.

  If you also get or are eligible for a pension from work where you did not pay Social Security taxes (usually a government job), a different formula is applied to your average monthly earnings. To find out how your benefit is figured, contact Social Security and ask for a copy of Windfall Elimination Provision (Publication No. 05-10045).

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